Tuesday, March 31, 2009

Six Flags May Be Headed For Bankruptcy - cbs5.com - (www.cbs5.com) Shares of Six Flags Inc. fell Friday on growing speculation that the theme park operator may be forced to file for Chapter 11 bankruptcy protection after the company said it could not meet a looming financing obligation. Six Flags shares, which have traded under $1 since last September, lost 3 cents, or 16.8 percent, to 16 cents in morning trading. The stock has traded between 16 cents and $2.50 during the past 52 weeks. In its annual report on Wednesday, the company, which owns Great America in Santa Clara and Discovery Kingdom in Vallejo, said a Chapter 11 filing is possible if the New York-based company cannot reach a deal to restructure its debt. In its fourth-quarter earnings report on Tuesday, Six Flags said it does not expect to have enough cash to redeem its preferred income redeemable shares, or PIERS, when they mature on Aug. 15. The shares, known as PIERS, must be redeemed for $287.5 million plus accrued and unpaid dividends, which may total up to $31.3 million.

Ron Paul: Believer in small government predicts 15-year depression - (www.ft.com) Pension trustees and insurance company portfolio managers look away now. Your increased commitment to government bond holdings in recent times is about to blow up spectacularly. At least, that is the view of Ron Paul, the US congressman who ran against John McCain in last year’s Republican Party presidential nomination. His is a minority view. Yields on government bonds worldwide have been falling fast over the past few months and in the UK, the commencement of “quantitative easing” this month sent bond prices soaring. But the credibility of both western governments and their currencies is waning, and has been ever since the gold standard was abandoned in 1971, says Mr Paul. And that means even “safe” investments are far from safe, he claims. “People will start to abandon the dollar as current and past economic policies create a steep rise in interest rates,” Mr Paul says. “If you are in Treasuries, you will need to be watchful and nimble to time your escape.” Unfortunately, cashing out will not protect the value of investments, he insists, because “fiat” currencies will all decline over the coming years as measures to try to haul the world economy out of recession fail. “The current stimulus measures are making things a lot worse,” says Mr Paul. “The US government just won’t allow the correction the economy needs.” He cites the mini-depression of 1921, which lasted just a year largely because insolvent companies were allowed to fail. “No one remembers that one. They’ll remember this one, because it will last 15 years.” At some stage – Mr Paul estimates it will be between one and four years – the dollar will implode. “The dollar as a reserve standard is done,” he says. He sees little hope for other currencies where central banks have also created too much liquidity dating right back to the early 1970s. “Europe and the US will both have to fundamentally change their money systems,” he adds. And don’t even mention shares to Mr Paul: “The last place you want to be is in the stock market,” he says. “It may not bottom out for 10 years – just look at Japan.”

California unemployment hits 10.5% in February - (www.latimes.com) Reporting from Sacramento -- California employers led the nation in mass layoffs in February as the state's unemployment rate hit 10.5%, the highest level since April 1983, state and federal labor agencies reported Friday. The reductions cascaded across all areas of the Golden State's economy, hitting major corporations that included Circuit City Stores Inc., Yahoo Inc., JPMorgan Chase & Co. bank, Ralphs Grocery Co. and the Los Angeles law firm of Latham & Watkins, among others. Big companies, which must file mandatory government reports every time they lay off at least 50 employees, gave pink slips to 45,557 Californians last month. Nationally, mass layoff events reached a record high in February, affecting 295,477 jobs in all industries tracked by the Bureau of Labor Statistics. The biggest portion, about a third, were in manufacturing, followed by retail trade and transportation and warehousing. California's losses were far higher than Illinois', with 19,469 jobs lost. Pennsylvania and Wisconsin were third and fourth. But the mass layoffs were only a modest portion of the damage done to the Golden State's economy because the bulk of jobs are at small and medium-size businesses. In all, California lost 116,000 jobs in February, bringing the 12-month total to 605,900. Layoffs began 18 months ago in residential construction and moved to finance and wholesale and retail trade. Now, the state numbers show that cutbacks are hitting the once-secure bastions of healthcare, education and government services, sending new waves of unemployed workers to job-hunting centers.

Goldman Insists It Would Have Lost Little if A.I.G. Had Failed - (www.nytimes.com) Hoping to reduce a swirl of speculation over its role in the bailout of the American International Group, Goldman Sachs reiterated Friday that its direct losses would have been minimal if A.I.G. had failed. Skip to next paragraphGoldman also described how, as early as July 2007, it began to have “collateral disputes” with A.I.G. as the companies disagreed on the value of the mortgage-backed securities that were the basis of multibillion-dollar contracts between them. David A. Viniar, Goldman’s chief financial officer, walked reporters through a thicket of numbers Friday in a conference call that the company held to “clarify certain misperceptions” about its positions with A.I.G. While Mr. Viniar acknowledged that Goldman’s relationship with A.I.G. raised what he called a complex set of issues, he was adamant that, because of the collateral Goldman held and hedging trades with third parties, it would not have been damaged directly if A.I.G. had been allowed to collapse.

Credit Unions With $57 Billion in Assets Seized; 3 Banks Fail - (www.bloomberg.com) Two corporate credit unions, with combined assets of $57 billion, were seized by the National Credit Union Administration yesterday to stabilize a system used by 90 million customers amid a worldwide financial crisis. Three U.S. banks failed, bringing this year’s total to 20. U.S. Central Corporate Federal Credit Union, in Lenexa, Kansas, and Western Corporate Federal Credit Union in San Dimas, California, were put into conservatorship, the regulator said in a statement. The credit unions failed so-called stress tests that found an “unacceptably high concentration of risk” from mortgage-backed securities, the agency said. “Most of the bad assets that we’ve seen in the corporate world reside at these two institutions,” NCUA spokesman John McKechnie said in a telephone interview. “We will be able to resolve them in a more efficient way.” The U.S. has 28 corporate credit unions, which make loans and provide other services for the retail credit unions that cater to the public. This is the first time a corporate credit union was seized since 1995, when NCUA took control of Capital Corporate, based in Landover, Maryland. U.S. Central has about $34 billion in assets and serves 26 retail credit unions. Earlier this year, it was granted a $1 billion federal injection in an effort to shore up public confidence. Western Corporate has $23 billion in assets and about 1,100 retail credit union members, the NCUA said. Yesterday’s two seizures may cost the agency’s insurance fund about $1.2 billion, McKechnie said.

The fiesta is over in recession-stricken Spain - (news.yahoo.com/s/ap) In the good old days of a very recent past, construction worker Antonio Montoya could afford two cars and a nice duplex for his family of six, with a sunny patio and pet canaries singing away. Spanish real estate was booming, jobs were abundant, and as Montoya would drive past the unemployment office, he felt like he was gazing at another planet. "I would say to myself, I'd never be in that situation." Now, once a month, Montoya goes to that same office, catching a bus to save on gasoline, and joins the sullen, ever-growing line. He sniffs out job offers, signs for his 750-euro ($970) monthly benefit and goes back home, often to meals of leftovers. "Imagine now, here I am at age 54, without a job," Montoya says in disgust. "I don't know how long I will be able to hold on." Almeria Province, a bone-dry patch of coastal southeast Spain, was once the setting for spaghetti westerns such as "The Good, the Bad and the Ugly." Later it became a place to make fortunes building sun-drenched vacation homes and golf courses. High-tech greenhouses sprang up, offering Europe a year-round source of fruit and vegetables. Now, two years after the real estate bubble burst, the province is one of the gushing wounds in Spain's recession-plagued economy. Almeria's unemployment rate of 25 percent is one of Spain's highest, and makes the nationwide figure of 13.9 percent — already the highest in the European Union — seem mild. As the global meltdown worsens, it offers a glimpse of where Spain may be heading. The government says unemployment nationally will reach 16 percent this year, and some forecasters say it may approach 20 percent. In many ways Almeria mirrored the nationwide model of construction serving a key engine of more than a decade of solid and sometimes robust economic growth, until mortgage rates rose and credit conditions tightened. At first glance, as in much of Spain, not much seems to be wrong in Almeria, the provincial capital. At midday, bars fill with people sipping a pre-luncheon glass of vermouth or beer, restaurants are packed and movie theaters do a decent business. But "for sale" signs hang from apartment balconies. Many storefronts are shut and their windows whitewashed. Construction sites stand half-finished and abandoned. On the outskirts of the city lies one particularly grim example: idle cranes next to the skeletons of two high-rise apartment buildings that were to be part of a huge subdivision with the chirpy name Pueblo de Luz, or City of Light. Its developer ran out of money. Antonio Rosal, an official of the Spanish labor federation Comisiones Obreras, says his office in Almeria simply cannot keep up with all the mass-layoff cases his office is negotiating with Spanish companies. Under Spanish law, talks with unions on severance terms are mandatory.

State unemployment office's call center swamped - (www.sfgate.com) An unprecedented rise in the number of jobless Californians has swamped Employment Development Department call centers, frustrating those who can't get through to a person while costing the state millions of dollars not to answer their pleas. VP adviser: AIG bonus tax may go too far 03.22.09 About 1.95 million Californians were jobless in February, compared with 824,000 at the same time in 2008, and those numbers have mushroomed in the last few months, putting pressure on every aspect of the unemployment system. Former EDD commissioner Michael Bernick, now an attorney in San Francisco, said the onset of the current joblessness is unlike anything the state has experienced before. "We've had periods of unemployment of 9 and 10 percent but what's different here is the speed of the increases," Bernick said. "A lot of new people have come into the system very suddenly and it's just been overloaded by the volume." The incredible congestion on the EDD's help lines shows how the jobless surge has taxed the resources of the state's unemployment insurance system. In January, EDD counted more than 50 million attempts to reach its call centers. In February, jobless Californians dialed for help more than 26 million times. EDD officials say most of those calls came from benefit seekers who had to redial between 20 and 30 times on average until a state worker answered the line.

Red Flags That Muni Investors Can’t See - (www.nytimes.com) Hammered by turbulent stock prices, investors have retreated in recent months to the relative safety of good old municipal bonds. Trading in this $2.7 trillion market rose 22 percent in 2008. Unfortunately, investor protection in this arena is so spotty that there is potential for much mischief. Full disclosure, that bedrock of fair securities markets, is the heart of the problem facing municipal investors. Indeed, municipal issuers often fail to file the most basic reports outlining their operating results or material changes in their financial conditions. Even though hospitals, cities and states that borrow money are required by their bond covenants to make such filings, nondisclosure among the nearly 65,000 issuers is common, municipal market authorities say. One out of two issuers is more than a year late in its filings, according to DPC Data, a company in Fort Lee, N.J., that collects information on municipal securities transactions. One out of four is chronically delinquent, by three years or more. You may not be surprised to learn why better disclosure falls through the cracks in the muni bond market: lax regulation. For example, legislation from the 1970s restricts the Securities and Exchange Commission from going after issuers that do not make required disclosures; the commission can spring into action only if fraud is suspected.

Monday, March 30, 2009

Hey, what about Freddie Mac's retention bonus plan? - (www.hotair.com) While everyone assails AIG for using less than 0.1% of the taxpayer-bailout money it received to meet contractual obligations in compensation through retention bonuses, another recipient of government largesse has its own bonus program in operation. According to their annual report, Freddie Mac has a generous retention bonus plan built into its operation for the next year. Eligibility includes all of the senior and executive VPs. It comes in four payouts, and only the last has any connection to company performance. Freddie Mac pays the bonus on a quarterly basis for simply sticking around, at least until the final quarter: Payout Timing The aggregate retention award for each individual will be paid in the regular payroll cycle occurring immediately after the following dates …1 20% December 15, 20082 20% August 1, 20093 25% December 15, 20094 35% March 15, 2010Payment Numbers 1, 2, and 3 will be based solely in the individual’s continued employment with Freddie Mac the through the indicated payment dates. Performance Requirements Payment Number 4 will be conditioned upon achievement of specific performance objective(s) that will be determined during the upcoming businessplanning process. That sounds a lot like the AIG retention bonus plan, although Freddie Mac does have a disclaimer stating that they can modify or end the program at their discretion. Since Freddie Mac and her sister Fannie Mae got over $200 billion in a pre-TARP bailout, more than the private AIG got (at least in the aggregate), one might ask why Freddie Mac built in retention bonuses in this November filing — two months after the taxpayer bailout.If AIG’s retention bonuses are a problem, why aren’t Freddie Mac’s?

Million Dollar Bonu$e$ at Fannie Mae - (www.pajamasmedia.com) Say it ain’t so. But looks like it is. Here we are, clutching our devastated 401Ks, howling for scalps at AIG, dizzy with the zeroes of the $3.55 trillion budget and the $797 billion “stimulus” and the $700 billion TARP, and the election of a President whose answer to all ills is to frag bomb the capitalist system, spend us into hock unto the umpteenth generation, blow out our currency in the process, and usher us into an era in which ACORN helps with the census and government doles out the ensuing rations. And, over at the outfit that primed the sub-prime fuse for this chain reaction, Fannie Mae, the top executives are now going to rake in six or seven-figure bonuses over the next year — in some cases double what they got last year. Here’s the AP reporting on Fannie Mae plans bonuses of $1M for execs. OK, I know, these are not the same executives as the ones who did so much to set us up for this free-fall. There has been plenty of debate over what to do about Fannie Mae and its companion incubus, Freddie Mac. There is a rational argument to be made for trying to retain employees who know where the rest rooms are, inside the palatial complex of Fannie Mae’s well-manicured head office. And there is a long and complex discussion to be had, or perhaps a lot more head-scratching to be done, at a few zillion more congressional conferences at private spas, and White House fiestas serving wagyu steak. But does anyone else get that feeling that enough’s enough? I have an anecdote about the former CEO of Fannie Mae, Franklin Raines. I’ve lost track over the past few years of how much, net, he raked in … between the $90 million in bonuses, the fraction repaid over the 2004 accounting scandal , the coming and going at Fannie Mae as the insane cost of this government experiment in housing promotion turned from a blip on the public radar into a nuclear cloud.

Owners skulking away from underwater US houses - (www.reuters.com) Ron Barnard is throwing in the towel. Like a growing number of the 8.3 million American homeowners who owe more on mortgages than their homes are worth, he's ready to just walk away. Barnard and others like him are starting to worry market experts and economists, who fret that the growing trend may deal a blow to an economy on its knees while swelling an already ample pool of bad loans. While others persist in draining savings and running up credit card debt in a last-ditch bid to save their homes, a growing number see no point in making boom-level mortgage payments in a bust market -- with no bottom in sight. "People are hurting," said Barnard, who includes himself in that group. "They're scared or they're angry," In California's Inland Empire east of Los Angeles, where Barnard lives and sells real estate, median home values have plunged more than 40 percent in the last year as formerly sidelined buyers snapped up foreclosed properties.

San Quentin Prison Seen as a Hot Property - (online.wsj.com) Even amid the real-estate bust, waterfront property in the San Francisco Bay area is a luxury few can afford. That's why some California lawmakers want to sell San Quentin State Prison -- which houses more than 5,300 inmates on prime land with stunning views of the bay -- to developers who might pay as much as $2 billion. State Sen. Jeff Denham, who has sponsored a bill to sell the complex of historic buildings for private development, thinks the proceeds could help replenish California's recession-depleted coffers. Call To Sell San Quentin Prison Kindles Debate Over Death Row. "I believe maximum-security inmates shouldn't have waterfront property," said Mr. Denham, a Republican from Modesto, in the state's Central Valley. "They could build a new facility somewhere else in the state and it could be done at a fraction of the cost." First, he and other lawmakers who agree with him would have to block Gov. Arnold Schwarzenegger's plan to spend $356 million as early as May to expand San Quentin's famous death row, a previously approved project meant to alleviate overcrowding. California's deep recession has rekindled a debate over the use of San Quentin, a 432-acre peninsula on the edge of the tony town of Larkspur in Marin County. The debate also highlights long-running questions about the viability of the state's capital-punishment system, in which nearly 650 male death-row inmates are more likely to die of natural causes than by execution as they wait for appeals.

Madoff's Wife Protects The Loot - (www.bloomberg.com) Bernard Madoff’s wife has declared her Palm Beach, Florida, estate as her primary residence, a move that may shield the $9.4 million home from creditors. Ruth Madoff applied for and received a homestead exemption for property taxes, said Dorothy Jacks, assistant property appraiser for Palm Beach County. The Florida constitution protects homeowners who have obtained the exemption and seizing the property may be difficult, said Danaya Wright, a law professor at the University of Florida in Gainesville. The U.S. government said this week it plans to seize assets including the Madoffs’ $7 million Manhattan apartment and the Palm Beach home. Bernard Madoff, 70, was jailed March 12 after admitting to masterminding the biggest Ponzi scheme in history. The exemption Ruth Madoff received may be an effort to protect the property from creditors, said Jack McCabe, founder of McCabe Research & Consulting LLC in Deerfield Beach, Florida. “The two big drawing cards to Florida were sunshine and affordability,” McCabe said. “Now it’s for sunshine and the protection of your primary mansion.”

Credit is a drug. The Fed is America's dealer. - (optionarmageddon.ml-implode.com) The Fed will be creating money electronically out of thin air to finance these purchases. When you buy a bond, its price rises and its yield drops. Buying another $750 billion of MBS along with $300 billion worth of Treasurys with printed money is a simple trade-off, debasing the currency so we can put a lid on the public’s and home buyer’s cost of debt finance. This is terrible monetary policy. Keeping interest rates artificially low will encourage credit expansion when what’s needed to actually heal the economy is credit contraction. This sounds counter-intuitive, isn’t more lending what’s needed to “get the economy going?” No, too much credit is what got us into this economic mess in the first place. Asset values of all kinds are still over-inflated relative to their intrinsic value, the value of their discounted cash flows. Credit is a drug. And the Fed is America’s dealer. We know we need to quit the stuff, but we’ll worry about that tomorrow. What we need right now is another fix in order to get through today. Our dealer, of course, is happy to oblige. This is just a recipe for deeper and more destructive addiction and, eventually, far more painful withdrawal.

More Debt: A False Solution To A Credit Crisis - (www.postchronicle.com) A nagging question haunts U.S. government efforts to revive a dormant financial system: Can a crisis that started because of excess credit be solved with more debt? The typical answer from economists is a qualified no. That is, "No, more credit will not make the problem go away. But yes, the government should do its best to restore bank lending to prevent an even worse economic outcome". Yet the refrain out of Washington places a lot of credence on the ability of debt to revive the country's economy. U.S. Treasury Secretary Timothy Geithner was only the latest to proclaim what has now become an official mantra. Without credit, which he and others call the "lifeblood" of the economy, you can kiss recovery hopes goodbye. Federal Reserve Chairman Ben Bernanke, justifying the massive help the central bank has offered to financial institutions, made his own case: "This disparate treatment, unappealing as it is, appears unavoidable. Our economic system is critically dependent on the free flow of credit." Detractors of this view argue that it offers an overly convoluted approach. The problem, they say is much simpler.

Sunday, March 29, 2009

Video: The Obama Deception - (bullnotbull.blogspot.com)House Passes Volunteerism Bill Critics Call Pricey, Forced Service - (www.foxnews.com) The House of Representatives passed a measure Wednesday that supporters are calling the most sweeping reform of nationally-backed volunteer programs since AmeriCorps. But some opponents are strongly criticizing the legislation, calling it expensive indoctrination and forced advocacy. The Generations Invigorating Volunteerism and Education Act, known as the GIVE Act -- sponsored by Reps. Carolyn McCarthy, D-N.Y, and George Miller, D-Calif. -- was approved by a 321-105 vote and now goes to the Senate. The legislation, slated to cost $6 billion over five years, would create 175,000 "new service opportunities" under AmeriCorps, bringing the number of participants in the national volunteer program to 250,000. It would also create additional "corps" to expand the reach of volunteerism into new sectors, including a Clean Energy Corps, Education Corps, Healthy Futures Corps and Veterans Service Corps, and it expands the National Civilian Community Corps to focus on additional areas like disaster relief and energy conservation. It is the first time the AmeriCorps program, which was created by President Clinton in 1993, will be reauthorized, and supporters say it will have additional funding to match the renewed interest in national service since President Obama's election and the acute need for volunteerism and charity in tough economic times.

Dodd Blames Obama Administration for Bonus Amendment – (www.bloomberg.com) Senate Banking Committee Chairman Christopher Dodd said the Obama administration asked him to insert a provision in last month’s $787 billion economic- stimulus legislation that had the effect of authorizing American International Group Inc.’s bonuses. Dodd, a Connecticut Democrat, said yesterday he agreed to modify restrictions on executive pay at companies receiving taxpayer assistance to exempt bonuses already agreed upon in contracts. He said he did so without realizing the change would benefit AIG, whose recent $165 million payment to employees has sparked a public furor. Dodd said he had wanted to limit executive compensation at companies that got money from the government’s financial-rescue fund. AIG has received $173 billion in bailout money. His provision was changed as the stimulus legislation was negotiated between the House and Senate. “I did not want to make any changes to my original Senate-passed amendment” to the stimulus bill, “but I did so at the request of administration officials, who gave us no indication that this was in any way related to AIG,” Dodd said in a statement released last night. “Let me be clear -- I was completely unaware of these AIG bonuses until I learned of them last week.” He didn’t name the administration officials who made the request.

4 Fannie Execs Each to Get $400K in Govt.-Okayed Bonuses – (www.washingtonpost.com) At least four Fannie Mae executives are slated to receive more than $400,000 in bonuses each this year as a result of the company's government-approved retention program, The Post's Zach Goldfarb reports. The executives include chief operating officer Michael Williams ($611,000), deputy chief financial officer David Hisey ($517,000), and executive vice presidents Thomas Lund ($470,000) and Kenneth Bacon ($470,000). Each of these executives earned about $200,000 in retention payments last year and salaries ranging from $385,000 to $676,000. Fannie Mae's chief executive, Herbert M. Allison, did not receive any salary or retention payments. He received $60,000 in compensation related mostly to reimbursements. Fannie Mae, which suffered $59 billion in losses last year, has requested $15 billion in taxpayer assistance, and has said it expects to need plenty more. All major compensation decisions are authorized by Fannie Mae's federal regulator, the Federal Housing Finance Agency, which created a retention program when the company was seized last September to hold on to key employees.

Auto suppliers to get $5B in aid - (www.usatoday.com) The Treasury Department on Thursday pledged to provide up to $5 billion in financing support to auto suppliers to help them survive a massive downturn in car sales.The Treasury said the program, run through key participating U.S. auto companies, will provide government guarantees to suppliers to ensure they will receive payment for products shipped, no matter what happens to the recipient car manufacturer. Participating suppliers also will be able to sell receivables into the government program at a modest discount, giving them access to desperately needed liquidity and helping to unlock credit more broadly in the supplier industry, the Treasury said.

FDIC's Bair: 'Too Big to Fail' Strategy Must End - (www.cnbc.com) The head of the Federal Deposit Insurance Corporation said Thursday that the government's strategy in the financial crisis of bailing out huge institutions deemed "too big to fail" must be replaced by a new model. FDIC Chairman Sheila Bair told Congress a new system of supervision that prevents institutions from taking on excessive risk and becoming so large their failure would threaten the financial system is needed. A mechanism is needed to resolve troubled financial institutions similar to what the FDIC does with federally insured banks and thrifts, she added. Testifying at a packed Senate Banking Committee hearing, Bair said simply creating a co-called systemic risk regulator —a central idea in the discussion of overhauling the U.S. financial rules—"is not a panacea." Bair appeared with other top regulators to discuss the high-stakes issue of modernizing oversight of the nation's financial institutions amid the crisis gripping the U.S. and the global economies.

Fed to pump nearly $1.2 trillion into the financial system – (www.usatoday.com) The Federal Reserve made it clear Wednesday that it will do whatever it takes to end the worst U.S. downturn since the Great Depression, announcing new plans to pump nearly $1.2 trillion into the financial system, including a historic commitment to buy up to $300 billion in longer-term Treasury securities. As part of its unexpectedly aggressive plan, the Fed also committed to hold a key interest rate essentially at zero "for an extended period" and to buy up to another $850 billion in mortgage-backed securities and debt. The actions could quickly translate into lower borrowing costs for home buyers, homeowners and businesses — and that, in turn, could help get the stalled economy moving again. The Dow Jones industrial average surged 91 points, to 7487, on news of the Fed's actions. Interest rates on Treasuries plummeted, with 10-year notes posting the biggest one-day move in nearly 50 years. The U.S. dollar sank against other currencies, however, as traders worried about the long-term implications of the policies, including possible inflation. Nevertheless, most experts applauded the Fed. "When you have a forest fire, gradualism is not a good idea," said Richard Hoey, chief economist at Dreyfus. "The aggressiveness of the Fed's action is consistent with the view that they understand the risks and have the power to act. This is not Hamlet deciding what to do."

BofA linked to Merrill write-downs – (www.ft.com) Bank of America was directly involved in markdowns that contributed to Merrill Lynch’s $15.3bn loss in the last quarter of 2008, its final reporting period before the Wall Street bank was acquired by BofA, sources familiar with the matter say. Mounting losses at Merrill during December almost derailed the acquisition. Ken Lewis, BofA’s chief executive, threatened to walk away from the deal unless the US government provided $20bn in extra capital. The deal closed on January 1 after federal officials pledged their support.

Investors Request $4.7 Billion in TALF Loans – (www.cnbc.com) The New York Federal Reserve said on Thursday that investors had requested $4.7 billion in the first round of its consumer and small business lending program, far below the $200 billion on offer. Investors requested $1.9 billion of loans to buy securities backed by auto loans and $2.8 billion for loans to buy credit card asset-backed securities. There was no demand for loans for securities backed by student or small business loans in the March 17-19 subscription period for the first round of the Fed's Term-Asset Backed Securities Loan Facility, known by its acronym TALF. The U.S. central bank had pledged to lend up to $200 billion in this month's round and said eventually the program could grow to $1 trillion.

US Is Rushing to Get More Control Of Financial Giants - (www.cnbc.com) The White House and Congress are rushing to write legislation that allows the federal government to take over and unwind the businesses of a large financial institution—such as AIG or Citigroup —the way it now can with commercial banks, CNBC has learned. The regulatory authority—similar to the FDIC’s so-called bridge bank powers—was originally expected to be included in a broader reform package addressing systemic risk. But now it's being crafted as stand-alone legislation in the wake of the public uproar over the AIG executive bonuses. The legislation, being spearheaded by House Financial Services Chairman Barney Frank (D-Mass.) could be ready for mark-up before Congress’ spring recess, which starts April 6, according to a senior Congressional staffer. A public hearing is also expected. “The President has asked us to fast-track,” said the source. “Drafting is going on at both ends of Pennsylvania Avenue.” The President Wednesday referred to the pressing need for such authority “get a proper mechanism in place,” adding he had discussed the issue with Rep Frank. It is unclear who is handling it on the Senate side, but it would presumably come under the portfolio of the Finance Committee, chaired by Chris Dodd (D-Conn.)

Saturday, March 28, 2009

Yet Another Incompetent Treasury Appointment - (Mish at globaleconomicanalysis.blogspot.com) It's clear to everyone that Treasury Secretary Geithner is in over his head and has no idea what he is doing. He should be fired. Instead the administration wants to give him help. Is "help" on the way? The answer can be found in Citi Losing Economist to Treasury. Citigroup Inc.'s chief economist is leaving the company for a job at the Treasury Department, according to an internal Citigroup memo. Lewis Alexander, who has been at Citigroup since 1999 and before that worked at the Federal Reserve, will head to the Treasury "to work on domestic financial issues," said the Citigroup memo, which was sent Tuesday. According to a government official, Mr. Alexander will be a counselor to Treasury Secretary Timothy Geithner. Mr. Alexander and a Treasury spokesman weren't available to comment Tuesday. A Citigroup spokesman declined to elaborate on the company's memo. The Obama administration so far has largely avoided tapping Wall Street officials for senior spots at the Treasury, wary of stoking the mounting political backlash surrounding the federal bailouts of the finance industry. That has irked top executives at some banks, who say they can't get an audience with top Treasury officials. Mr. Alexander's role as Citigroup's chief economist didn't entail significant management responsibilities. But his optimistic economic forecasts colored executives' views that the U.S. was unlikely to face a prolonged slump. "I think that's not going to spill over more broadly into the economy, and so I think we're going to have a normal kind of housing cycle that's going to last through the middle of this year," Mr. Alexander said in a 2007 interview on PBS. Those top bank executives should be thanking their lucky stars they have a job. Instead they are whining about not getting an audience with the Treasury. The real story, however, is the continued appointment of incompetent fools in the Treasury department.

For Many Young Irish, First Taste of Hard Times - (www.washingtonpost.com) Niall O'Donoghue grew up in a rich country. He got an architecture degree, a top-paying job with a pay raise every year and a bonus at Christmas. O'Donoghue and his wife bought a house in the city and another in the country. They have two cars, two mortgages and two children under age 2. Then a month ago, O'Donoghue, 33, was laid off, jobless for the first time in his life, another well-dressed victim of one of the world's fastest and deepest economic reversals. "It's a bit of a shock to the system, especially for my generation," O'Donoghue said one recent morning, waiting in the cold with dozens of other people in line outside the Limerick unemployment office. "I don't think things will ever be as good as they were in the last five, six or seven years. That's the bitter truth of it." Young Irish people accustomed to economic boom times have suddenly found themselves living a bleak page out of Irish history. Many in their 20s and 30s -- a generation raised on the assumption of jobs and prosperity at home -- have had their expectations crushed by the global economic crisis. On the gloomiest St. Patrick's Day in years, the national jobless rate stands at 10.4 percent, more than twice the rate at this time last year. More than 354,000 people signed up last month for unemployment benefits, an 87 percent increase over the previous year. After 20 years of roaring growth during Ireland's "Celtic Tiger" economy, the government is bailing out teetering banks; the construction industry, which had driven the boom, is at a standstill. Property prices have crashed and stores and factories are closing. Young professionals who bought houses -- and often second homes as far away as Spain and Bulgaria -- are stuck with mortgages worth more than the properties. Well-educated young workers are losing jobs they assumed were safe, and finding it hard to adjust to problems they thought belonged to their parents and grandparents. "This was the last thing I expected," said Joanne Martin, 24, who pulled up to the unemployment office in a sporty two-seater Mazda. Martin said she graduated from college with degrees in bioengineering and biotechnology and interned with NASA in Florida. But she is still out of work after applying for at least 100 positions in at least 20 different companies. "I never thought it would be like this." Older Irish people remember recessions of the past when the most reliable route to a job was to emigrate to Britain, the United States and beyond.

Hedge Funds Liquidate In Record Numbers In 2008 – (www.cnbc.com) A record 778 hedge funds liquidated during the fourth quarter, capping a year that saw financial markets melt down and investors yank $150 billion of their money at the end of 2008, Hedge Fund Research Inc said Wednesday. The ranks of hedge funds were more than decimated as 1,471 hedge funds closed down last year, or nearly 15 percent of all funds, HFR said. More than 275 funds-of-hedge funds were liquidated in 2008, also a record. Meanwhile, 56 new funds were launched during the quarter, contributing to 659 that opened their doors throughout 2008. On a net basis, the total number of hedge funds fell by 8 percent to 9,284 last year, the Chicago-based firm said. Last year was a disaster for hedge funds, lightly regulated investment pools that are the exclusive playground of big institutions and wealthy families. As markets tanked, investors withdrew money and triggered a cycle of forced selling that put more pressure on markets. The number of liquidations more than doubled the previous quarterly record of 344 set in the third quarter. Last year's liquidations marked a 70 percent increase from the previous annual record set in 2005. Among other findings, HFR said the credit crunch that roiled Wall Street's biggest banks did not loosen their grip on the prime brokerage business: the top three prime brokers still controlled 62 percent of hedge fund industry capital. Last year also was a record for disparity in performance, with about 100 percentage points separating the top 10 percent of performers from the bottom 10 percent.

IRS Plans a Deduction for “Connected” Madoff Victims - (www.nytimes.com) Why is it that this was never provided to previous ponzi scheme victims. This group of privileged individuals and groups was allowed to invest in a closed fund that most were not allowed to. The fund did not contribute to SIPC insurance fund, yet they are being allowed to claim SIPC insurance funds and get special IRS write-offs. The Internal Revenue Service said Tuesday that it would allow victims of Bernard L. Madoff’s huge investment fraud to claim a tax deduction related to the bulk of their losses. The plan represents the first time the I.R.S. has come forward with a policy on the treatment of Mr. Madoff’s victims, who include Elie Wiesel, the Holocaust survivor and Nobel laureate; Steven Spielberg, the filmmaker; and John Malkovich, the actor, among scores of other individuals, charities and universities. The matter has been a point of debate and anxiety for the victims and their accountants, given the lack of clarity in the tax code about how it should be handled.The plan, which applies to victims of all Ponzi schemes, is likely to provide major relief to victims of Mr. Madoff, who pleaded guilty last week to orchestrating what prosecutors say is the largest Ponzi scheme — one that exceeded $50 billion and involved 13,000 investors. It is also likely to provide clarity for victims as they prepare to file federal income tax returns by the April 15 deadline, and help the I.R.S. avoid an unwanted avalanche of amended returns from victims. The commissioner of internal revenue, Douglas Shulman, announced the plan in testimony before a Senate Finance Committee hearing on Ponzi schemes, tax evasion and offshore banking fraud. Later, in a briefing, Mr. Shulman said that “clearly the Madoff case is tragic as so many people were victims of this fraud, but the case also raises a staggering array of tax issues.”

Chicago's Condo Market on Ice - (www.chicagopublicradio.org) Lakeshore East was a small golf course until 2002, when Magellan Development bought the property. Now there are five highrises here and another one almost done. Ambi: Concrete pouring sound and cheering. Eighty-two stories above ground, Magellan executives cheer as they pour concrete for the final floor of the Aqua building. It’s a slim tower with balconies that ripple like waves. And it's hit a sweet spot - already 98-percent of the condos have sold. The fact that the building exists at all is kind of a miracle. Magellan co-CEO Jim Loewenberg says they got the construction loans in 2007, right before banks stopped lending. LOEWENBERG: The whole issues were starting to come to a head, the banks were starting to not trust each other, and so I just don’t know if it would have been done if it had been 60 days later. That credit collapse sent downtown real estate into freefall. AUCTION: 480, 490, 490 left side, now 500,000, five from the back, now 510.... Downtown just witnessed its first-ever auction of luxury condos. And there may be more. AUCTION: 557, once twice, I have 556, 557 third and final call, 557? Sold, congratulations, 556,000. Buyer number is 467. That penthouse in the South Loop went for almost 40 percent off. The South Loop exploded with growth during the boom. But it now has the most unsold condos of any neighborhood downtown. Until recently, downtown prices hadn’t dropped much, but sales were pretty much frozen. Developer Thomas Roszak says he put dozens of his condos on the block as a way to thaw the market. ROSZAK: No one’s selling anything right now. Today we’re going to prove there are 40 buyers out there and they're all willing to buy at a certain price, so from today on, everybody out there who’s a seller will have to react to the price we just determined today. People may be willing to buy at a certain price - whether they can get loans is another matter. Mortgages of more than 400-thousand dollars are hard to come by these days. That could delay a recovery. In the meantime, the city is left with some of the collateral damage.

Freddie Mac: The Government's Next Black Hole? - (www.time.com) AIG is to date the most expensive corporate bailout in American history, requiring $180 billion in government funds. But it may soon have competition. Last week mortgage giant Freddie Mac said it had lost $50 billion in 2008 alone. A look at the company's books suggests the government will have to spend at least triple that much to save the financial firm from collapse. If the housing market worsens, the tab could be even larger. "Freddie's portfolio of [mortgage] insurance is more risky than the market was led to believe," says Paul Miller, an analyst at FBR Capital Markets. Sister company Fannie Mae lost even more last year, with $58.7 billion of red ink. But Fannie was better capitalized than Freddie going into the credit crunch. So even though Freddie by many measures is smaller than Fannie, the problems at Freddie will probably end up costing more. Citigroup and other banks have also lost money and will need more capital to survive. But in those cases it's not clear who will take the hit — shareholders, bondholders or the government. In the cases of AIG, Freddie Mac and Fannie Mae, however, there is no question where the money will come from. Freddie and Fannie were taken over by the government and put into conservatorship last fall. AIG is currently 80% owned by the government. The losses at those companies are now taxpayer losses. (See 25 people to blame for the financial crisis.)

California $Billions In The Hole Again - (Mish at globaleconomicanalysis.blogspot.com) California Budget Faces New $8-Billion Shortfall. The plan that Gov. Arnold Schwarzenegger and lawmakers approved last month to fill California's giant budget hole has already fallen out of balance with a projected $8-billion shortfall, the Legislature's nonpartisan budget analyst said Friday. After analyzing recent data showing rapidly rising unemployment and lower-than-expected economic growth, Legislative Analyst Mac Taylor said the state is on track to have even less money than lawmakers anticipated in February. California's economy in is such bad shape that Taylor's office anticipates that residents' combined personal income will be lower this year than it was last year, leading to fewer tax dollars for state coffers. "I went as far back as 1950, and I could not find a situation in which personal income had actually declined in the state, so that's a rather unusual event," Taylor said at a news conference Friday. The dour projection is likely to complicate Schwarzenegger's effort to win voter approval for a package of budget-related ballot measures scheduled for a special election May 19. Assembly Speaker Karen Bass (D-Los Angeles) said the new estimate made it more imperative that voters approve the May ballot measures. If the package of propositions --particularly the lottery borrowing -- is rejected, the budget gap would increase by $6 billion, she said. Taylor said the new $8-billion budget hole should not be as difficult to grapple with as was the $42-billion gap. He said the state may be able to tap $3 billion in federal money intended to increase schools spending as part of the federal economic stimulus package passed by Congress.

Uptick Rule Nonsense - (Mish at globaleconomicanalysis.blogspot.com) The search for scapegoats is widening. Please consider a letter written to Jim Sinclair by Duncan Niederauer, Chief Executive Officer, NYSE Euronext. Duncan's letter was posted in the article Developments On The Restoration Of The Uptick Rule. Dear James: Last fall we promised to keep you apprised of any developments on short selling or the uptick rule. As you know, I have been a big proponent of reinstating the uptick rule and from the survey we did last fall, the vast majority of you agree with me. We are the only U.S. exchange to support this position from day one. It seems that we are finally gaining some traction with regulators and there is now some political momentum to make a change, and I am hopeful that the other trading venues in the U.S. will finally support such a change. Barney Frank, who chairs the U.S. House of Representatives Financial Services Committee, said earlier this week that he hopes the uptick rule will be reinstated within the next month and I was in Washington yesterday speaking with top officials at the SEC about this very thing. I am not sure if the rule will be reinstated in its original form, but I do see us working with other equity markets and regulators in the near future to come up with a few new ideas for the best way in which some form of the "tick test" could be reintroduced. This could involve a price test that takes the greater speed of today’s markets into account or stock-specific rules that would be triggered by trading activity. No matter what form the rule ultimately takes, change is coming and that should help restore some confidence and stability in the markets. As always, your comments and suggestions are welcome. I will keep you updated as more information is available and we will continue to advance on this and other positions that support your company and shareholder interests. Nonsensical Proposal: A requirement that only permits stocks to be shorted on upticks makes exactly as much sense as only allowing stocks to be purchased on downticks. In a single word "None".

SoCal median home price plummets 39 percent - (www.sfgate.com) The median home price in Southern California dropped 39 percent in February from a year ago as bargain-hunting buyers descended on homes in the region's most affordable inland neighborhoods, a tracking firm said Tuesday. The price in a six-county region of Southern California plunged to $250,000 last month, compared to $408,000 in February of 2008, San Diego-based MDA DataQuick said. The report said home sales jumped more than 41 percent. February's median price was unchanged from January, representing the first time that month-to-month prices have not declined in 10 months. DataQuick spokesman Andrew LePage warned however that the month-to-month figures don't necessarily show a leveling off of home prices, since it would take several more months for such a trend to establish itself.